Cogent Consulting to be Acquired by Broker Consortium


New York – Cogent Consulting, a provider of institutional commission management tools, recently announced that a consortium of leading global institutional broker-dealers have signed a non-binding letter of intent to acquire a majority stake in the company, with definitive documents scheduled to be concluded this summer. According to Robin Hodgkins, President of Cogent Consulting, “This acquisition will help propel Cogent’s products and services into new areas that will all help support the growth of commission management, research valuations, and CSA payments.” The acquisition caps a series of discussions with these brokers that started in 2008 related to Cogent’s position in the commission management space, the capabilities of Cogent’s products, and the creation of industry-standard tools for the management of CSAs/CCAs.

Integrity Research has been following developments in the commission management space; as we argued in our ResearchFocus report on CSAs, there is a strong case to be made for consolidation of CSAs, and widespread consensus among the buy-side that this would be desirable for reasons having to do with convenience, efficiency, and risk-management. The outstanding question came down to who buy-side firms would trust with the management or ownership of a consolidated CSA system: an independent firm, a consortium of broker-dealers, etc.

Cogent has positioned itself well to be a central player in CSAs by developing the technology platform and interfaces necessary to act as a CSA hub: Cogent’s CSA Trak BD “Cloud” system aims to be a standardized platform for clients to access their CSA broker information in one consolidated portal, streamlining operations, reducing staffing requirements, improving payment processing, and viewing broker credits on a virtually aggregated basis. The development of a common communications protocol for trade reconciliation and processing may certainly help to clear many of the headaches that buy-side firms have with existing CSA systems. The backing of several (so far unidentified) major broker-dealers will almost certainly help Cogent to gain increased traction with buy-side firms.

On the other hand, it is not clear that the Cogent solution addresses buy-side concerns about counterparty risk and segregation of CSA funds. CSA users clearly see risk-management and asset segregation as a key requirement for any move towards consolidaton; however, there is no indication that this Cogent/consortium arrangement will lead to CSA funds being held anywhere other than the originating broker dealer. Any CSA-consolidation platform that ignores the very real concerns about counterparty risk may fall short of buy-side customer requirements.

Other questions to consider:

1. Many of the major broker-dealers have spent a considerable amount of time and effort in building their own CSA management systems in order to attract trade-flow from institutional clients. What happens now to those systems? Do they continue to compete with Cogent – a firm they may presumably own in the near future? Are they made obsolete?

2. Who are the members of the consortium? How will the firms left out of the consortium react?

3. Will the consortium members be willing to accept CSA payments made through the Cogent platform for their own research?

Links to the full press release from Cogent and acquistion info are provided below:

[Cogent Press Release]
[Acquisition Announcement FAQ]


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  1. The Cogent solution gives market participants, whether buy or sell side, the tools and infrastructure to remove many of the operational barriers and issues they have faced in managing CSA/CCA’s in the past, and concentrate on the business aspects instead. This has significant business benefits.

    For example, you refer in the post above to the buy-sides concerns about counterparty risk. From a business perspective one key way that money managers seek to mitigate this risk is to spread their CSA trading across multiple brokers. However, without a central utility this often means implementing multiple IT interfaces, different reconciliation processes and learning how to operate different systems – potentially one new system per broker. Thus for many buy-side firms, their choice of number of CSA brokers to deal with can be limited by infrastructure, IT or operational issues rather than what should be the key counterparty/credit risk driver. With a central utility solution, this changes as there will be a single interface, single reconciliation process and single system to learn and operate, whether you have two or twenty brokers. They are also able to report their total research pool figures by summing these across brokers given the figures are all stored on the same platform. This allows fund managers to adopt the number and mix of brokers in line with their business drivers and counterparty risk appetite, as it should be, without IT and infrastructure constraints. In this way the Cogent solution will indeed address these buy side concerns.

    For brokers, the advantages are that they can reach many more clients and offer them CSA arrangements without having to overcome technology hurdles and can concentrate on the business benefits to promote their CSA arrangements.

  2. Bill George on

    Ever since the SEC created the new Client Commission (Sharing) Arrangements as outlined in the July 2006 approval and release of its Interpretive Guidance on the Appropirate Use of Client Commissions Under Section 28(e) of the Securities Exchange Act of 1934 and the subsequent “No Action Letters” issued to Goldman Sachs’ Research Xpress service and to CAPIS, I’ve pondered some of the problems with Client Commission (Sharing) Arrangements. Early-on I thought it was odd for the SEC to give full service brokers – who do not disclose or identify the nature or pricing of the research and other services they provide in bundled brokerage arrangements – significant control over the commission pools which are created in Client Commission (Sharing) Arrangements. And, early on it seemed to me that, a better way to handle the commission pools created in the Client Commission (Sharing) Arrangements would be to have a third-party administrator handle all institiutional clients’ brokerage commissions paid in excess of the fully-negotiated costs of execution [see Section 28(e)]. The third party administrator could then distribute the excess commissions paid, above the fully-negotiated costs of execution, to the research providers within the guidelines outlined in the SEC “No Action Letters” mentioned above. The third party administrator could provide escrow accounting and hold accrued institutional clients’ commission dollars in escrow accounts. A provision for insuring the escrowed money could be devised through banking channels, or through private insurance (client diversification and good escrow accounting and auditing would reduce insurance costs and reduce the costs of insuring the pools). Interest on clients’ commission deposits would help reduce the costs of the service. Removing the full-service broker from the position as the administrator of the commission pools would reduce counterparty risk and it would force the disclosure, identification and transparency of the services (and their costs) provided, excess of transaction execution, by full-service brokers.

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